CBSE 2025, Set 1

Question

Read the following statements carefully:

Statement 1: Marginal Propensity to Consume (MPC) refers to the consumption per unit of income.
Statement 2: As the income increases, the proportionate increase in the level of consumption is always more than the increase in the level of income.

In the light of the given statements, choose the correct option from the following: A). Statement 1 is true and Statement 2 is false. B). Statement 1 is false and Statement 2 is true. C). Both Statements 1 and 2 are true. D). Both Statements 1 and 2 are false.

Edvaya · Accepted Answer

The correct answer is Both Statements 1 and 2 are false.. (D) Both Statements 1 and 2 are false.

*Explanation:*
Statement 1 is false because consumption per unit of income ($C/Y$) is the **Average** Propensity to Consume (APC), whereas MPC is the ratio of *change* in consumption to *change* in income ($\Delta C / \Delta Y$).
Statement 2 is false due to the fundamental psychological law of consumption, which states that as income increases, consumption also increases, but by a *smaller* proportion than the increase in income (since MPC < 1).

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Economics > Introductory Macroeconomics > Determination Of Income Employment

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